The Reimbursement Tug-of-War

The State Health Plan (SHP) is looking for ways to control healthcare cost and it has its eyes set on the reimbursement rates paid to medical providers. Why is this important? According to North Carolina’s Treasurer, Dale Folwell, the State Health Plan has an estimated unfunded liability of $35 billion leading to potential insolvency by 2023.

Currently, medical providers are reimbursed based on negotiated rates, which are set by insurance carriers. Mr. Folwell wants to change the current reimbursement methodology. Effective January 1, 2020, Mr. Folwell would like to tie the SHP reimbursement rates to the Medicare reimbursement rates. The proposed plan would reimburse healthcare providers at 182% of Medicare reimbursement rates. By making this change, North Carolina could save approximately $300 million per year; and an additional $60 million per year for the approximately 720,000 members with lower out of pocket expenses.

Medical providers are opposing the proposed cuts and there’s been legislative efforts to slow down the process. State House Bill 184 recently passed the House; it would delay the Medicare pricing model until 2021 and create a joint committee to review ways to control healthcare cost. Additionally, hospitals are calling for a more collaborative approach. For example, one approach that’s gaining traction is reimbursement rates tied to meeting quality metrics and value – instead of the standard fee-for-service model.

It’s important to note the SHP is trying to leverage the approximately 720,000 members to develop a participating network. Most employers don’t have the enrollment volume to leverage its own participating network. In these cases, we typically see employers use an established physician network for the professional fees; and then tie facility reimbursements to Medicare Rates. This approach is called Reference Based Pricing. Employers should carefully review these type of plans, since there are no “in-network” facilities. The lack of participating facilities and not having a defined reimbursement schedule could lead to the following issues:

  1. Employee medical expenses over the “allowed amount” (that don’t accumulate toward the employees Out-of-Pocket Maximum) may violate the Affordable Care Act Out-of-Pocket Maximums limits.
  2. These plans may not meet the adequacy access to quality providers requirements.
  3. Verification that the plan meets the Minimum Value Provision 4980(b) by paying at least 60% of the total cost of benefits. This actuarial certification may prove difficult since there is no facility/hospital network.

Many employers and public entities continue to look for ways to manage their healthcare cost and the usage of Medicare reimbursement rates is currently a topic that is getting attention in the marketplace. This approach provides savings, but it also comes with political and compliance considerations. If you are interested in learning more about Reference Based Pricing, please contact us. (